Introduction: enforcement on the rise
Keeping abreast of antitrust legislative developments and enforcement trends in Asia-Pacific is critical for those supporting and advising global businesses that pursue active growth in this strategic region. This second edition of the regional overview of enforcement activities against cartel and abuse of dominance in GCR’s The Asia-Pacific Antitrust Review looks to provide the required insights to navigate a complex and fast-evolving legal landscape and assist in making informed decisions.
Asia-Pacific remains one of the most economically dynamic regions in the world, with a 5.7 per cent (forecast) gross domestic product growth in 2017, maintaining the momentum of 2016. In parallel, a gross domestic product per capita growth of 8.3 per cent in the Asian developing countries, combined with an Asian outbound investment year-on-year increase of 98.4 per cent in the first half of 2017 indicate that populations in the region are getting richer and more sophisticated.
This inevitable tipping towards ever more mature, consumption-driven economies is coupled with the continued trend towards market liberalisation in these otherwise still highly centralised regimes. For instance, in China, deregulation has been a top priority for the State Council for the past five years. The forces at play not only create considerable business opportunities but also increase the call for effective competition law enforcement as a tool to foster efficient markets in the region.
Against the backdrop of these macroeconomics trends, 2017 has seen a deepening of the tendencies previously identified, namely:
- more Asian jurisdictions embracing competition law and an intensifying of international cooperation;
- continued crackdown on cartels, in particular bid-rigging;
- increasingly severe enforcement against offenders, with fines on the rise and criminalisation of the regimes; and
- growing sophistication of enforcers starting to consider new theories of harm only now explored so far in more mature jurisdictions (eg, in the digital economy).
This chapter seeks to capture and illustrate these developments, through an overview of key legislative features, recent enforcement trends and what to expect in the year ahead.
Legislative and policy trends
New laws and reforms
Development of competition law in Asia-Pacific has been remarkable in the past few years, and 2017 has been consistent with past trajectory. As of today, all jurisdictions in the region have enacted a cross-sector competition law regime, except Cambodia, Bhutan and North Korea.
It is in the ASEAN region that we note the most significant level of legislative activity, with member states seeking to meet their obligations under the economic integration goals self-assigned by the international organisation, which celebrated its fiftieth anniversary in 2017. Accordingly, some member states have attempted to accelerate the process towards effective competition law enforcement. Cambodia has produced an advanced draft competition law which is expected to be passed in the coming year. In Myanmar, the Competition Act came into force in February 2017, and the newly established Myanmar Competition Commission is drafting implementing rules with a view to commence enforcement soon given the increased interest of international investors in the country. In the Philippines, the grace period under the new law lapsed in August 2017, and the implementing rules have been published. The Philippines authority is already perceived internationally as an active enforcer. Finally, Brunei Darussalam has set up the first independent Competition Commission in August 2017 to enforce the law passed two years ago.
Aside from entirely new regimes, some jurisdictions have undertaken profound reforms of their competition law regimes with a view to more effective enforcement. To stay in the ASEAN region, Thailand has adopted a new Trade Competition Act, which came into force in October 2017, replacing the previous law enacted in 1999 which proved ineffective, with no successful prosecution ever taken. The new act establishes a competition authority that is now independent, and capable of imposing administrative sanctions (without having to rely exclusively on criminal prosecution which set too high a burden). Vietnam has also pursued a substantive reform initiative. The current Vietnam competition law was passed in 2004, but the authority regards the law as difficult to enforce and not in line with international practices. The new Vietnam Competition Law introduces a leniency programme, and supplements the current market share criteria of determining market power with a variety of factors such as the technological and financial capacities of the investigated company, offering greater enforcement flexibility to the , authority.
Mature jurisdictions have also been pursuing important reforms. For instance, following the recommendations from the Harper Competition Policy Review, the parliament of Australia voted amendments to the Australian Competition Law in August and October 2017. The changes are motivated by the wish to increase sanctions and cast a broader net to capture anticompetitive behaviour. As such, the law introduces a prohibition against ‘concerted practices’ and against abuse of market power that may have the ‘effect’ of lessening competition, regardless of whether the corporation took advantage of that market power. The oldest competition authority in Asia-Pacific, the Japan Fair Trade Commission (JFTC), is pushing to amend the current Japanese Anti-Monopoly Act. Under the current system, the JFTC has no discretion in determining the final level of the fine. The proposed amendment, which is not yet adopted, would enable the JFTC to adjust the fines based on the company’s level of cooperation. The expectation is to increase cooperation levels in the future, and thus enforcement effectiveness.
Another interesting trend to note in terms of legislative development is the launch of the Fair Competition Review System (FCRS) in China. This mechanism provides for the first ex-ante competitive impact assessment system for new laws and regulations in China. On 1 June 2017, the State Council promulgated the Opinions on Establishing a Fair Competition Review System in the Development of the Market System. The National Development and Reform Commission (NDRC) followed with the Rules for Interim Implementation in October 2017, which set out a detailed checklist of criteria legislative and regulatory bodies to check the compatibility of their proposed regulation with competition law. The implementation of FCRS has been vigorous so far. Between July 2016 and August 2017, ministerial departments have conducted FCR on more than 1,200 regulations, while local governments reviewed around 1,000 documents in the same period. NDRC has declared enforcement of the FCRS a priority for the coming year, and has established the Fair Competition Review Bureau in January 2018. Chinese competition authorities consider that alongside enforcement, the FCRS is a critical tool to grow a culture of competition in China.
Deeper international cooperation
International cooperation has continued to intensify over the past year both on the multilateral and bilateral fronts. ASEAN has continued to promote competition law in the region, with the ASEAN Experts Group on Competition (AEGC) announcing its goals in an ASEAN Competition Action Plan (2016–2025), including the implementation and effective enforcement coupled with regional cooperation. Some scholars argue that if ASEAN is to create a single market, a unified ASEAN competition policy and enforcement would be called for. ASEAN also took initiatives to cooperate with external agencies. The heads of competition agencies of ASEAN member states met with those of Australia and New Zealand in 2016. The Asia-Pacific Economic Cooperation (APEC) held its annual meeting of the APEC Competition Policy and Law Group in Vietnam in February 2017. All official representatives of APEC member states agreed to share new developments in competition law and promote understanding of competition laws and policies in the region.
As for bilateral cooperation, competition authorities remained busy negotiating and signing more memoranda of understanding to facilitate their cooperation in 2016–2017. To name a few:
- Japan-Singapore (2017);
- Japan-Mongolia (2017);
- Hong Kong-Canada (2016);
- China (SAIC)-UK (2016); and
- China (MOFCOM)-Japan (2016).
Some of the memoranda provide for extensive information sharing between authorities. For instance, the MOU between Hong Kong and Canada contains a procedure for the request for information between the authorities, as long as the information requested could assist enforcement of one of the authorities.
With many markets and companies now global in scope, and the recognition that competition law has extraterritorial implications (with conduct often taking place outside of the jurisdiction where the law is being enforced), competition authorities in Asia-Pacific are quickly deepening regional and bilateral cooperation to increase their reach. It is expected that the trend of international cooperation and the importance of competition policy in the agenda of Asia-Pacific states will continue, if not further strengthen, in 2018.
Asia-Pacific has been issuing more headline cases in the past year. While the fight against cartels, especially bid-rigging, continues to be at the top of all agencies’ agenda, we also observe a trend towards authorities taking on more complex and sophisticated cases, notably in relation to the IT sector and the digital economy.
Priority on bid-rigging
Bid-rigging (in particular in relation to public tenders) has been identified for some time as an absolute priority in competition law enforcement. The underlying policy reason is compelling: while public procurement accounts for 12 per cent or more of gross domestic product, and at least 29 per cent of general government expenditures, studies show that bid-rigging can lead to price increase at consumer level of 20 per cent or more. This effect would be magnified in emerging economies. Consistent with this analysis, the OECD published the ‘Recommendation on Fighting Bid Rigging in Public Procurement’ in 2012,and has carried out many country projects to help fight bid-rigging since 2011.
In Asia-Pacific, competition authorities including Hong Kong, Singapore, South Korea, India and Indonesia, have emphasised repeatedly that bid-rigging, of all cartels, would be an enforcement priority. The first ever case brought by the Hong Kong Competition Commission to the Competition Tribunal (initiated in 2017 and to be tried in the summer 2018) is a bid-rigging case. The Korea Fair Trade Commission (KFTC) made a regulatory statement in January 2017 that bid-rigging would be given high-priority in competition enforcement.
Overall, across the region, competition authorities have issued in 2017 striking fines against bid-rigging. In February 2017, the JFTC fined distributors of fire rescue digital radio in the amount of ¥6.34 billion for bid-rigging. In December 2017, the KFTC issued a 92.2 billion won fine against six steel manufacturers, including a fine of 25.6 billion won against Hyundai Steel alone, for bid-rigging in a tender of the state-owned Korea Gas Corporation.
A cross-jurisdiction enforcement focus on bid-rigging in the sectors of shipping, auto parts, construction and pharmaceuticals is apparent in Asia-Pacific and the trend is expected to continue in the coming year.
Despite a special policy focus on bid-rigging, other types of cartels remain obviously high on the enforcement radar of competition authorities in the region. In China, for example, NDRC imposed a fine of 457 million yuan over 18 Chinese manufacturers for fixing the price of PVC in September 2017, after having imposed a fine of 72.9 million yuan over 23 power generation companies in Shanxi province for price-fixing in August 2017. The Competition Commission of Singapore completed its investigation against five capacitor manufacturers for price-fixing in April 2017, and imposed a total fine of S$19.6 million, its highest penalty to date.
While we see attempts at taking on more complicated theories such as hub and spoke cartels (eg, in Australia), overall competition authorities tend to favour classical theories of harm, pursuing rather ‘clear-cut’ cases they believe to be able to establish easily, given the limited development of their investigative tools and enforcement culture.
While 2016 was an active year for enforcement in the vertical space, particularly resale price maintenance (RPM), with striking fines in China, for instance, in the auto sector against General Motors (US$29 million), or in the medical devices industry against Medtronic (US$17.2 million), enforcement against RPM seems to have softened in 2017. Decisions against RPM in 2017 have resulted in much smaller pecuniary sanctions than before, with Taiwan deciding in three cases where the fines did not exceed US$81,000 and China issuing only a few decisions, with the largest fine being US$366,800 against Eastman Chemical. The only sizeable sanction against a case of RPM in 2017 comes from India, where the Competition Commission of India imposed a US$13.5 million fine against Hyundai Motors for having imposed terms on dealers, including maximum discounts and tie-in arrangements for servicing products.
This trend may reveal an emphasis throughout the region to providing guidance on acceptable conduct in the context of vertical arrangements. As such, the NDRC has already issued draft regulations in the auto-sector, which codify the current enforcement practice, and the preparation of draft guidelines on price-related vertical agreements has also been suggested, though not confirmed yet.
Towards more effective enforcement
Jurisdictions in Asia-Pacific are not only taking steps to embrace or develop competition law, but also to enhance their effectiveness in law enforcement. Recognising the paramount need for institutional transparency and reliability, an increasing number of competition enforcers are gaining independence from the government, such as the new Thai Trade Commission or Indonesia’s KPPU.
Dawn raid and leniency programmes remain the most powerful investigative tools available to competition authorities. Most agencies in Asia-Pacific (except Indonesia and Taiwan) have the power to carry out dawn raids. The still young Hong Kong Competition Commission has executed at least 10 dawn raids within only 13 months of the commencement of Hong Kong competition law. Dawn raids in other jurisdictions such as China, South Korea, Japan, Australia and India are frequent, including the China’s NDRC dawn raid against 12 PVC companies in June 2017, which led to a landmark fine of US$69.2 million.
Leniency programmes are generally available in Asia-Pacific except in Indonesia, Thailand and Vietnam, and jurisdictions with leniency programmes are in the process of refining them, convinced that this is a key enforcement tool against hardcore cartels. The NDRC has promulgated the draft Guidelines for Horizontal Agreement Leniency for public consultation in 2016 and is negotiating with other ministries to finalise them. The new guidelines clarify the leniency regime: only the first three cartel members in the same case would be entitled to apply for leniency, with the first in line entitled to at least 80 per cent fine reduction, the second 30–50 per cent, and the third up to 30 per cent. It is the Chinese authorities’ expectation that an improved, more predictable leniency policy will increase the success rate, which has been somewhat disappointing so far. Finally, some jurisdictions, like Taiwan and South Korea, went even further than the standard leniency programme, adopting whistle-blowers programs to incentivise cartel informants.
Last but not least, the region is dedicating significant efforts to increase the deterrent effect of competition law enforcement. The trend toward criminalising cartel conduct and increasing criminal prosecutions continued in 2017. The Australia Competition and Consumer Commission (ACCC) convicted a Japanese shipping company of criminal cartel conduct in August 2017, marking the first successful prosecution under the criminal cartel provisions of the Australian competition law. It is believed that 2018 will be another important year for Australian criminal cartel prosecutions. In Taiwan, the chairperson of the Taiwan Fair Trade Commission (TFTC) stated in September 2017 that the authority was considering whether to adopt criminal enforcement in order to gain search and seizure powers. The Korean State Council approved the latest amendments to the Korean competition law, and added an imprisonment sentence of up to two years for failure to comply with information request from the KFTC. Alongside the criminalisation trend, we continue to see an uptick in the level of pecuniary penalties imposed on cartel members across the region.
Abuse cases: marching ahead
Despite the manifest focus on cartels, competition authorities in Asia-Pacific have been active fighting abuse of dominance in 2017, with the cases against Qualcomm in Korea and Taiwan arguably the most visible and commented upon in this category.
In January 2017, the KFTC imposed a record fine of 1.03 trillion won on Qualcomm, having found the company to have breached its fair, reasonable and non-discriminatory (FRAND) commitments as a standard essential patents holder by refusing to offer to license its patents to several chipset makers and forcing them into unfair patent licence contracts. The Seoul High Court dismissed the appeal from Qualcomm in September 2017 and the Supreme Court of Korea further dismissed the company’s reappeal in November 2017.
Separately, in October 2017 the Taiwanese authority imposed a fine of T$23.4 billion against Qualcomm on the basis of similar findings. This decision by the TFTC was heavily criticised by various government members in Taiwan, concerned about negative impact on foreign investment in the country. The TFTC, however, held its ground, allowing only Qualcomm to pay its fine in 60 monthly instalments. Qualcomm has made an application for stay of execution and commenced administrative proceedings against the TFTC in December 2017. No judgment has been issued yet.
In terms of enforcement trend, these Korean and Taiwanese decisions against Qualcomm should be read against the backdrop of the NDRC decision fining Qualcomm to US$975 million in 2015, on similar findings. This would validate the theory of ‘contamination of investigations’ across the region. Furthermore, after decisions of such magnitude, Asia seems to have set the tone that antitrust enforcement in the intellectual property space will be a key focus in the years to come, as will be further discussed below.
Enforcement against abuse of dominance outside the realm of intellectual property was by no means less active in 2017, though perhaps less spectacular. China’s State Administration for Industry and Commerce imposed fines in abuse of dominance cases in sectors such as pharmaceuticals (Zhejiang Second Pharma and Tianjin Handewei Pharma, US$66,000), water supply (Wujiang Huayan, US$3.1 million) and petroleum (PetroChina, US$3.6 million). Other authorities in the region have a similar track record for 2017 enforcement in various sectors.
Digital economy and the next frontier
Understanding where competition law enforcement is headed in Asia-Pacific will be critical for businesses operating in the region. The interplay between intellectual property and competition law is becoming a central theme, as demonstrated by the string of recent cases against Qualcomm and the enforcers’ attempt to codify their position in relation to antitrust and intellectual property. In March 2017, the Anti-Monopoly Commission of the State Council of China published the draft Anti-Monopoly Guidelines on the Abuse of Intellectual Property Rights for public consultation. The controversial article 15 provides that some intellectual property rights may be labelled as ‘essential facilities’, which could have deep implications in terms of curbing incentives to innovate as well as China’s alignment with the approach adopted by other jurisdictions.
Another developing focus is the digital economy, as regulators are trying to grapple with the significance of disruptive business models for competition law enforcement. While the policy debate is raging in the United States and in Europe, Asia is by no means passive. Nascent agencies may invest most of their resources in cartel cases and traditional sectors, but some of the more experienced jurisdictions are actively considering the implications of these new models. For instance, the Competition Commission of Singapore jointly organised a conference with the Singapore Academy of Law on ‘disruptive innovation and big data’ in August 2017, where lawyers, economists, business representatives and public officers discussed the implication of digital economy on competition law and policy. China, where the online economy has developed dramatically in recent years, is drafting its E-Commerce Law, which contains a ban on anticompetitive conduct. Antitrust claims also seem to crop up in this space, with JD.com recently filing both a lawsuit, and a complaint to the NDRC, against Alibaba for exclusionary practices allegedly amounting to abuse of dominance. This will be a very important area to watch.
Although enforcement in the digital economy remains to be developed in the region, the recent discussions taking place in this space will be sure to inform the future enforcement activity of Asian authorities, which have continued to demonstrate in 2017 that they are quick to go up the learning curve.
1 Asian Development Bank, Asian Development Outlook 2017, www.adb.org/publications/asian-development-outlook-2017-middle-income-challenge.
2 International Monetary Fund, World Economic Outlook Database, www.imf.org/external/pubs/ft/weo/2017/02/weodata/index.aspx.
3 CBRE Research, Asia Outbound Investment H1 2017, www.cbre.com/research-and-reports/Asia-Outbound-Investment-H1-2017-English
5 Authorities of India, South Korea, Hong Kong, Indonesia and Singapore also indicated that cartels and in particular bid-rigging would be their priority in future enforcement.
6 For instance, fines for cartels in Australia from US$46 million in 2016 to US$130 million in 2017, and China from US$5 million to US$82 million in the same period.
8 Vietnam Law & Legal Forum Magazine, ‘http://vietnamlawmagazine.vn/revisions-to-competition-law-proposed-5836.html’.
12 China Government News, ‘www.gov.cn/xinwen/201710/5234731/files/d78cf6b8b2d64bf0b4793bf334a04959.pdf’.
14 Xinhua News Agency, [www.xinhuanet.com/fortune/2018-01/30/c_1122337325.htm].
16 Fox, Eleanor, ‘Can ASEAN Achieve a Single Market with National-Only Competition Law, ‘https://awards.concurrences.com/IMG/pdf/chapter_5_fox_-_national-only_competition_law.pdf’.
17 ASEAN Expert Group on Competition (AEGC) Inaugural Annual Report 2016.
18 OECD, Inventory of International Cooperation, ‘http://www.oecd.org/daf/competition/mou-inventory-list.pdf’.
21 Canada Competition Bureau, www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/04159.html.
24 OECD, Asia-Pacific Competition Update, Issue 20, p.15.
27 Practical Law, ‘https://uk.practicallaw.thomsonreuters.com/w-012-3634?transitionType=Default&contextData=(sc.Default)’.
28 People’s Daily Online, ‘http://en.people.cn/n3/2017/0927/c90000-9274463.html’.
30 PaRR, ‘https://app.parr-global.com/intelligence/view/1634950’.
31 See eg, News Ltd v Australian Rugby League Ltd (No.2) (1996) 64 FCR 410, ACCC v Air New Zealand (2014) FCA 1157, and ACCC v Australian Egg Corporation Limited  FCA 69.
32 TFTC fined Sinphar Pharmaceutical for TWD 2.5 million (US$81,000), see ‘https://www.ftc.gov.tw/uploadDecision/6f42e0d4-3caa-43ed-a823-a2126a45aff7.pdf’; TFTC fined Alterna for TWD 150,000 (US$5000), see ‘https://www.ftc.gov.tw/uploadDecision/164d1850-f14f-43b4-9e72-8401cbb5d331.pdf’; TFTC fined NEXGEN for TWD 500,000 (US$17,000), see ‘https://www.ftc.gov.tw/uploadDecision/522b0951-1c78-4586-837e-849119e6c34c.pdf’.
34 Competition Commission of India, Case 36/2014 & Case 82/2014, ‘http://www.cci.gov.in/sites/default/files/36%20and%2082%20of%202014.pdf’.
35 Ingen-Housz, Clara, Thailand: Coming into force of a new Trade Competition Act, China Law Insight (forthcoming).
36 PaRR, ‘https://app.parr-global.com/intelligence/view/prime-2581394?src_alert_id=54981’.
41 Taiwan implemented Regulations on Payment of Rewards for Reporting of Illegal Concerted Actions in 2015, and the whistleblower may receive up to NTD 10 million (US$340,000), see ‘https://www.ftc.gov.tw/internet/english/doc/docDetail.aspx?uid=1430&docid=14680’; KFTC’s similar regulation was amended in October 2017, and a pecuniary reward of KRW 2 billion (US$1.8 million) was added to the regulation, see ‘https://app.parr-global.com/intelligence/view/prime-2528417’.
47 For example, KFTC fined six department stores in South Korea for US$1.9 million for abuse of power in subcontracting deals; Taiwan FTC imposed a US$1.1 million fine on three cable TV system operators also for abuse of market power.
48 Competition Commission of Singapore, ‘https://www.ccs.gov.sg/media-and-publications/media-releases/ccs-sal-competition-law-conference-2017’.